Internet rivals break out champagne

Telecom's jubilant internet service provider rivals were last night hopeful of a rapid beginning to significant increase in broadband competition.

By contrast the reaction from Telecom itself to the Government's decision to force it to provide its competitors with favourable access to its "local loop", one of its most valuable assets, was understandably gloomy.

A gleeful Mark Rushworth, the chief executive of ihug, Telecom's main rival in the ADSL broadband market and New Zealand's number three internet service provider (ISP), said he was "absolutely delighted" with the announcement.

"Ihug's been pushing for this for many months and years and the announcement's great for our customers and more than that, great for New Zealand because, now Kiwis can truly enjoy fast broadband.

"The handbrake's finally come off and we have to applaud the Government's decision, it made the right choice and tonight the champagne will be flowing."

Rushworth said he'd be talking to Telecom "as soon as tomorrow" about getting access to their exchanges.

Number two ISP TelstraClear was similarly gratified. Chief executive Allan Freeth said Cunliffe's announcement would allow "true competition for the first time" in ADSL (asymmetric digital subscriber line - the most common broadband service).

"There will be a lot of Telstraclear staff very happy tonight."

Freeth indicated the decision would likely prompt a renewed push into the New Zealand market by his company which is owned by Australia's incumbent telco Telstra.

"In my early discussions with our Australian shareholder this evening they are both very pleased and it's certainly changed the whole environment for investment by them here.

"For the last 18 months or so I've been struggling to convince my shareholder that this is a good market to invest in. [Telstra chief executive] Solomon Trujillo's view has been this is pretty ugly and they are giving us no incentives to continue the investments that Telstra has made. For the first time I'll be able to go back to him and say things have changed and this is looking quite attractive."

Following Communications Minister David Cunliffe's announcement the Government was to unbundle the local loop and a subsequent share price mauling on the Australian market, New Zealand's biggest listed company was on the back foot.

"It is hard to see how the steps announced today will deliver on the Government's aims of high speed broadband throughout New Zealand," Telecom said.

General manager of government and industry relations Bruce Parkes said the company was not so much surprised by the well anticipated announcement as "disappointed that the Government has taken such a retrograde step that is going to have long-term consequences that are not good for customers".

Parkes reiterated the company's warning that high-speed broadband services and the advanced products that will run on them required major investment from all players in the sector and Telecom remained unconvinced its rivals would make that type of investment.

While Cunliffe and Telecom's competitors argued the measures announced yesterday would encourage investment, Parkes said that mere "copycat" duplication of Telecom's existing investment was likely.

Ihug has previously said it would spend up to $20 million installing higher-speed ADSL2+ equipment in Telecom's exchanges should unbundling go ahead.

Parkes said Telecom was already doing that.

"The biggest factor that will deliver improved broadband speeds by ADSL is investment in the local loop. Telecom needs to invest in copper network, shortening copper loops by investing in more fibre network. That's many hundreds of millions of dollars and is the sort of investment that is put significantly at risk by this decision."

Meanwhile, ihug's Rushworth said while he had expected the Government to unbundle the local loop, it was a "huge surprise" Telecom would be forced to offer improved unbundled bitstream (UBS) service under which ihug already onsells Telecom's broadband.

He said an unconstrained UBS product would mean that finally New Zealanders would be able to make practical "Skype"or internet phone calls because of higher upload speeds.

"That has far wider implications in the short term for Telecom than local loop unbundling, there's billions of dollars at risk here in terms of the incumbent's exising revenue stream."

Rushworth anticipated it would take about 12 months for consumers to see the benefit of local loop unbundling because of delaying tactics likely to be employed by Telecom.

However, "by improving the existing UBS wholesale product it means that immediately we can start to see improved speeds ... so it's the best of both worlds".

THE PATH TO UNBUNDLING

September 2003: Telecommunications Commissioner Douglas Webb recommends unbundling of the local loop.

December 2003: Webb reverses his position and recommends adopting Telecom's proposed bitstream wholesale service instead.

May 2004: Telecom chief executive Theresa Gattung writes a secret letter to Communications Minister Paul Swain saying that if unbundling happens, the company's stock price will suffer and so will the economy. Cabinet endorses Webb's recommendation not to unbundle against the advice of Swain and the Ministry of Economic Development.

July 2004: Swain promises to review the Telecommunications Act by the end of the year.

October 2004: Telecom writes to commission agreeing to establish 250,000 broadband connections by the end of 2005.

December 2004: David Cunliffe becomes Communications Minister.

June 2005: Webb tells an industry conference Telecom has crippled the wholesale market.

August 2005: Cunliffe promises to review the Telecommunications Act.

September 2005: Cunliffe promises that if Telecom falls short of its wholesale goal, action will follow.

November 2005: Telecom reinterprets its wholesale goal as one third of growth, as opposed to one third of total customers. Commission rejects the statement.

December 2005: Commission grants TelstraClear unconstrained access to Telecom's network, with download speeds up to 7.6 megabytes at a wholesale cost of $27.87 per customer. Telecom threatens legal challenge.

January 2006: TelstraClear succumbs to legal threat and signs deal with Telecom.

February 2006: Telecom announces it has fallen short of its wholesale target. Prime Minister Helen Clark criticises Telecom on national radio. Telecom lowers broadband prices and lifts download speed.

May 3, 2006: Cunliffe announces Telecom will be forced to unbundle the local loop.